Against the ‘Shinsei tax’


Stung into action by controversial tax proposals, eight private equity firms have grouped together to form the Japan Private Equity Association (JPEA). The JPEA was incorporated in August as a non-profit organisation, comprising:Advantage Partners, Eastpoint Capital Management, MKS Consulting, Carlyle Japan, Globis Capital Partners, JP Morgan Partners Asia, Nikko Antfactory and Unison Capital.

John Ehara, managing partner of Unison Capital, has been nominated the first chairman of the JPEA

However, this is merely the official launch of an organization whose roots go back to December 2004. At that date, the firms held hands to lobby against a Japanese Ministry of Finance proposal for more punitive taxation of private equity investments by foreign buyout firms investing through partnerships.

It was dubbed the ?Shinsei tax in the wake of the vast profits made by a consortium of overseas investors led by New York buyout house Ripplewood Holdings when the Japanese bank was listed on the Tokyo Stock Exchange early last year – profits that, thanks to an offshore structure, were nottaxed. The deal provoked public anger given that public cash had been used to bail the company out before it was acquired by the consortium – prompting the government in turn to slam shut tax loopholes as a form of appeasement.

The ?group of eight reacted to the tax proposals by sending a widely publicized letter to the Ministry saying: ?The proposed changes risk reducing foreign investors' appetite to invest in Japan. The letter added that the changes would also contradict a policy address given by Prime Minister Junichiro Koizumi in 2003 in which he stated an intention to double foreign direct investment into Japan to 2.4 percent of gross domestic product by 2008.

?As this example shows, there are lots of regulatory and legislative actions that affect our activities in many respects, said Tatsuya Hayashi, a partner at JPEA member Unison Capital. ?We as an industry will need to make appropriate inputs in this process.?

Hayashi added that the JPEA would need to compile industry data in areas such as investment volume and also monitor the impact of private equity on the Japanese economy.